Oil rises but threat of supply surprise lingers

LONDON: Oil prices rose on Tuesday, boosted by expectations that demand could grow quickly enough to match supply this year, although concern over a potential battle for market share between Saudi Arabia and Iran limited gains.

Front-month Brent crude futures were up by 74 cents at $45.22 a barrel by 1340 GMT. US crude futures rose 76 cents to $43.40 a barrel.

“Market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year,” BP Chief Executive Bob Dudley said in a statement after the firm reported stronger-than-expected results.

However, some analysts warned it was too early to call an end to the crude glut as Saudi Arabia and Iran could ramp up output further in a race for customers.

“The biggest bear risk to the oil market right now is that Iran’s ramp-up accelerates and then that Saudi Arabia does the same,” Citi said in a note to clients.

“If anyone had a doubt about Saudi Aramco’s ability to use its logistical system and spot sales to increase market share, its recent 730,000-barrel sale of a cargo to a Chinese teapot refiner in Shandong should lay any doubts to rest,” it said.

The cargo will be lifted in June from Aramco’s storage in Japan’s Okinawa prefecture and shipped to China’s eastern province of Shandong, Reuters reported.

Citi said it was likely that Saudi Arabia was targeting 500,000 barrels per day (bpd) in new sales to bring its production up to at least 11 million bpd.

The oil price has risen by nearly 14 percent in April, putting it on track for its largest monthly gain in a year and some analysts are reluctant to be too optimistic about the prospects of further gains, given that supply and demand are still misaligned to the tune of some 1 million barrels a day.

“I think there is a downside correction due, but it’s all about timing,” PVM Oil Associates analyst Tamas Varga said.

“Maybe all the bulls are looking much further ahead than I do and are looking at the second half of the year, which is going to be less oversupplied than the first half. But on the other hand, the feeling two months ago was that in the second quarter, every single day global stocks would build by 1 or even 2 million barrels.”

On April 17, a deal to freeze oil output levels by OPEC and non-OPEC producers fell apart after Saudi Arabia, during talks in the Qatari capital of Doha, demanded Iran join in.

-Reuters

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